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Income Tax Appellate Tribunal, “A” BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI, M. BALAGANESH
आदेश /O R D E R
PER M. BALAGANESH, ACCOUNTANT MEMBER:
The appeal in ITA No.2652/Mds./2017 is directed against the order passed by the Ld.CIT(A) -3, Chennai in dated 30.08.2017 against the order passed by the ld. Assessing Officer u/s.143(3) r.w.s.254 of the Act dt.07.12.2016. The appeal in ITA No.2034/Mds./2017 is directed against the order passed by the Ld.CIT(A)
-3, Chennai in dated 30.06.2017 against the order ITA Nos.2652 & 2037/Mds./2017 :- 2 -: passed by the ld. Assessing Officer u/s.154 of the Act dated 28.02.2017.
These appeals are taken up together for the sake of convenience and disposed off by this common order.
First we take up ITA No.2652/Mds./2017
2. The only issue to be decided in this appeal is as to whether the Ld.CIT(A) was justified in confirming the disallowance made u/s.40(a)(ia) of the Act in the sum of `70,32,891/- and `81,46,798/- in the facts and circumstances of the case.
The brief facts of the issue are that the assessee company is engaged in the business of manufacturing and exporting of readymade garments and had filed its return of income for assessment year 2010-11 admitting total income of `127,06,914/- after setting off carry forward business loss of 14,45,378/- pertaining to assessment year 2009-10. The assessment was completed u/s.143(3) of the Act on 28.03.2013 determining the total income at `868,02,598/-. The assessee got partial relief before the Ld.CIT(A) against the additions made in this assessment Later both the Revenue as well as the assessee preferred an appeal before this Tribunal. This Tribunal in ITA No.2050/Mds./2015 & ITA No.2212/Mds./2015 vide order dated 28.06.2016 set aside the orders of the lower authorities and remitted back to the file of AO with regard to the issues contested before it. Accordingly, a show-cause notice was issued by the ld. Assessing Officer on 27.09.2016 calling for the details of labour, processing fee, testing fee, audit fee etc., of `70,32,891/- and & 2037/Mds./2017 :- 3 -: expenditure of 3,65,01,708/-. In response to the showcause notice, the assessee filed various details vide letters dated 09.11.2016, 23.11.2016, 25.11.2016 and 02.12.2016. The assessee also submitted a copy of bills and vouchers, TDS remittance challans, party-wise payment details etc.
The assessee was asked to produce all the original bills and vouchers, ledger details and TDS remittance details along with challans break up for verification. All these details were duly furnished by the assessee before the ld. Assessing Officer. On verification of various details filed by the assessee, the ld. Assessing Officer proceeded to complete the assessment u/s.143(3) r.w.s.254 of the Act by making the following disallowances:-
(i) Disallowance u/s.40(a)(ia) of the Act : `70,32,891/- (labour, processing fee, testing fee, audit fee etc.,)
The ld. Assessing Officer disallowed a sum of `70,32,891/- representing expenditure towards labour, processing fee, testing fee, audit fee etc., u/s.40(a)(ia) of the Act on the ground that the tax was not deducted by the assessee in respect of the said expenditure and also on the ground that these expenditures remained outstanding at the end of the previous year. The ld. Assessing Officer also observed that the TDS details furnished by the assessee were not matched along with the TDS challans and bill wise payments. Accordingly, he observed that the assessee was not able to prove all the amount of payments were remaining outstanding as on the balance sheet date with regard to the & 2037/Mds./2017 :- 4 -: above mentioned expenditure. Based on this observation, he disallowed the entire sum of `70,32,891/- u/s.40(a)(ia) of the Act in the assessment.
(ii) Disallowance u/s.40(a)(ia) of the Act : `81,46,798/-
The assessee claimed a sum of `365,01,708/- towards business expenditure. The ld. Assessing Officer observed that these expenditures were pertaining to financial year 2008-09 relevant to assessment year 2009-10 and accordingly not allowable for the year under appeal. He further observed that in view of the proviso to Sec.40(a)(ia) of the Act, the expenditure which is subjected to TDS in any assessment year should be allowed on the basis of deduction of TDS on payment basis by placing reliance on the decision of this Tribunal in the case of ACIT Vs. Ennore Coke Ltd., in ITA No.1921/Mds./2015 dated 22.01.2016. The ld. Assessing Officer observed that in this regard the assessee submitted the original bills and vouchers together with the TDS remittance challans in support of its claim. On verification of the same, the ld. Assessing Officer noticed that out of assessee’s claim of expenditure of `365,01,708/-, an amount of `283,54,910/- was found to be correct and accordingly allowed the same and the difference of `81,46,798/- was disallowed u/s.40(a)(ia) of the Act by the ld. Assessing Officer.
Before the Ld.CIT(A) with regard to disallowance u/s.40(a)(ia) of the Act in sum of `70,32,891/- towards labour, processing fee, testing & 2037/Mds./2017 :- 5 -: fee, audit fee etc., the assessee submitted the TDS reconcilation is as under:-
Particulars Amount in Rs. (`) Amount on which TDS was deducted 17,98,039/- Amount on which TDS is not applicable 14,19,293/- TDS not deducted 38,15,560/- Total 70,32,892/- Based on the above mentioned chart, the assessee pleaded that the disallowance be restricted to the sum of `38,15,560/-, being the amount on which the tax was not deducted. The Ld.CIT(A) however, did not heed to the contentions raised before him by the assessee and accordingly upheld the action of the ld. Assessing Officer by sustaining the disallowances.
4.1 With regard to the disallowance of `81,46,798/- u/s.40(a)(ia) of the Act, the assessee produced the list of expenditure for `81,46,798/- stating that certain expenditure does not come under the ambit of deduction of tax at source and certain expenditure were incurred below the threshhold limit of applicability of TDS provisions. The details of the same are as under:-
Particulars Amount in Rs. Testing expenses 169924 Consumables 346242 Purchase Fabrics 113711 Repairs & Maint 114522 Engg & Fuel 235072 Car-petrol/diesel 151859 Repairs & Maint(P&MP 171213 Labour charges 175148 Water xps 251928 & 2037/Mds./2017 :- 6 -:
Electricity office 340050 Repairs & Maint(Others) 382033 Designs & Development 415611 Purchase of furniture 442805 Purchase of electronics 700000 Machinery spares 1146359 Acid chemicals 1250177 Export-Air freight 1684471 Others 55673 Total 8146799 The Ld.CIT(A) however, did not heed to the contention of the assessee and upheld the action of the ld. Assessing Officer. Aggrieved, the assessee is in appeal before us on the following grounds:-
“1. For that the order of the Learned Commissioner of Income Tax (Appeals) is contrary to law, facts and circumstances of the case.
2. For that the Learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs.70,32,891/-uls 40(a)(ia) of the Act.
3. For that the Learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs. 81,46,798/- u/s. 40(a)(ia) of the Act.
4. For that the Learned Commissioner of Income Tax (Appeals) erred in confirming the levy of interest u/s. 234A of the Act in consequence to the above disallowances.
5. For that the Learned Commissioner of Income Tax (Appeals) erred in confirming the levy of interest u/s. 234B of the Act in consequence to the above disallowances.
6. For that the Learned Commissioner of Income Tax (Appeals) erred in confirming the levy of interest u/s. 234C of the Act in consequence to the above disallowances.”
We have heard the rival submissions and perused the materials available on record. From the facts narrated above, we are of the considered opinion that the lower authorities had not looked into the entire issue in the proper perspective vis-à-vis the various details and evidences submitted by the assessee before the ld. Assessing Officer as well as Ld.CIT(A). Hence, we deem it fit and appropriate to remit this & 2037/Mds./2017 :- 7 -: issue in respect of two disallowances made u/s.40(a)(ia) of the Act as above, to the file of ld. Assessing Officer in the interest of justice and fair play and decide the same in the light of evidences submitted by the assessee. The assessee is also at liberty to furnish evidences in support of its claim before the ld. Assessing Officer. Accordingly, the grounds raised by the assessee in this appeal are allowed for statistical purposes.
Next we take up ITA No.2034/Mds./2017
The only issue to be decided in this appeal is as to whether the Ld.CIT(A) was justified in upholding the disallowance of depreciation of `2,30,78,160/- ignoring the provisions of Explanation-5 to Sec.32(1) of the Act in the facts and circumstances of the case.
The facts of the issue are that the assessment was completed u/s.143(3) of the Act declaring total income at `8,68,02,598/-. Later, the assessee preferred a rectification petition u/s.154 of the Act on 26.12.2016 wherein a claim for depreciation in the sum of `2,30,78,160/- was made by the assessee before the ld. Assessing Officer on the assets put to use by it for the purpose of business. The ld. Assessing Officer passed an order u/s.154 of the Act dated 28.02.2017 by observing as under:-
“This office was in receipt of your rectification petition u/s.154 dated 26.12.2016 for A.Y 2010-11 requesting for allowing depreciation of `2,30,78,160/-. On verification of Income Tax Return filed by you for A.Y 2010-11, it was found that you have claimed depreciation for `2,30,78,160/- in column 12(i) of schedule BP however in column-6 of Schedule-DEP, it has been left blank. As such your request for rectification u/s.154 cannot be processed.”
& 2037/Mds./2017 :- 8 -:
The ld. Assessing Officer dismissed the claim of depreciation of the assessee as stated above. The assessee pleaded before the Ld.CIT(A) by placing reliance on the provisions of explanation-5 to Sec.32(1) of the Act, which states that the depreciation should be allowed to the assessee irrespective of the fact whether or not, the same was claimed in the return of income by the assessee. However, the Ld.CIT(A) did not accept this argument of assessee and rejected the plea of assessee. Aggrieved, the assessee is in appeal before us on the following grounds:-
“1. For that the order of the Learned Commissioner of Income Tax (Appeals) is contrary to law, facts and circumstances of the case.
For that the Learned Commissioner of Income Tax (Appeals) erred in confirming that the petition u/s.154 of the Act filed by the appellant cannot be processed.
3. For that the Learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of depreciation claimed u/s.32(1) of the Act Rs.2,30,78,160/- without appreciating the fact that the same is allowable as per the explanation 5 to section 32(1) of the Act.
We have heard the rival submissions and perused the materials available on record. We find the the provisions of the Act contained in Explanation-5to Sec.32(1) is very clear, which is reproduced herein under for sake of convenience:-
Section 32 DEPRECIATION ……… ………….. Explanation 5— For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has & 2037/Mds./2017 :- 9 -: claimed the deduction in respect of depreciation in computing his total income ; In view of the aforesaid specific provisions contained in Explanation-5 to Section 32(1) of the Act, we are inclined to accept the claim of depreciation in a sum of `2,30,78,160/- made by the assessee.
Accordingly, ld. Assessing Officer is hereby directed to grant allowance for the same. Hence, the grounds raised by the assessee in this appeal are allowed.
9 In the result, the appeals of the assessee in ITA No.2652/Mds./2017 is allowed for statistical purposes and in ITA No.2034/Mds./2017 is allowed. Order pronounced on 08th February, 2018 at Chennai.